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PB

PROSPERITY BANCSHARES INC (PB)·Q2 2025 Earnings Summary

Executive Summary

  • PB delivered solid Q2 2025 results: diluted EPS $1.42 (+21.4% YoY; +$0.05 QoQ) and net income $135.2M (+21.1% YoY; +3.8% QoQ), with tax‑equivalent NIM rising to 3.18% (+24 bps YoY; +4 bps QoQ) .
  • Versus Wall Street consensus, PB posted a slight EPS beat and a modest revenue miss: EPS $1.42 vs $1.414*; revenue $310.7M vs $315.3M* (net interest income $267.7M, noninterest income $43.0M) .
  • Asset quality ticked up: NPAs rose to $110.5M (0.33% of average interest‑earning assets) from $81.4M in Q1; management attributed increases to three discrete buckets (single‑family mortgage, a Lone Star credit, and a LegacyTexas portfolio) and did not add to ACL in Q2 .
  • Strategic catalyst: PB announced an all‑stock acquisition of American Bank Holding Corp. (~$2.5B assets), expected to add ~$85–$90M annual NII plus ~$15–$16M from AOCI accretion and be mid‑single‑digit margin accretive post‑close .

Values marked with * are retrieved from S&P Global.

What Went Well and What Went Wrong

  • What Went Well

    • EPS and net income growth: diluted EPS $1.42 (+21.4% YoY); net income $135.2M (+21.1% YoY). CEO: “double digit increases in net income and earnings per share compared with the second quarter of 2024” .
    • NIM expansion: tax‑equivalent NIM 3.18% (+24 bps YoY). CFO: model shows continued NIM expansion with full‑year 3.25%–3.30%, 3.35% in six months, 3.48% in 12 months (base case) .
    • Loan growth and disciplined funding: loans +$219.8M linked‑quarter (4.0% annualized), non‑interest bearing deposits 34.3% of total; management highlighted deposit pricing discipline .

  • What Went Wrong

    • Revenue miss vs consensus: revenue of ~$310.7M came in ~$4.6M below S&P Global consensus*; noninterest income was lower YoY given lapping prior‑year securities gains .
    • Higher NPAs: NPAs increased to $110.5M (0.33% of average interest‑earning assets) from $81.4M in Q1; management cited single‑family mortgage foreclosures and two specific acquired credits, though losses are expected to be limited and adequately reserved .
    • Deposit seasonality: deposits fell $553.4M QoQ (−2.0%) on public fund seasonality and business deposit declines; management emphasized typical Q2/Q3 seasonal outflows .

Financial Results

MetricQ4 2024Q1 2025Q2 2025
Diluted EPS ($)$1.37 $1.37 $1.42
Consensus EPS ($)$1.3346*$1.3540*$1.4137*
Revenue ($USD Millions)$307.6*$306.7*$310.7*
Consensus Revenue ($USD Millions)$303.4*$307.9*$315.3*
Net Interest Income ($USD Millions)$267.8 $265.4 $267.7
Noninterest Income ($USD Millions)$39.8 $41.3 $43.0
Tax‑Equivalent NIM (%)3.05% 3.14% 3.18%
Efficiency Ratio (%)46.10% 45.71% 44.80%
ROA (annualized, %)1.31% 1.34% 1.41%
ROTCE (annualized, %)13.50% 13.23% 13.44%

Values marked with * are retrieved from S&P Global.

Balance Sheet & Credit KPIsQ4 2024Q1 2025Q2 2025
Loans ($USD Billions)$22.149 $21.978 $22.197
Deposits ($USD Billions)$28.381 $28.027 $27.473
Noninterest‑Bearing Deposits (% of total)34.5% 34.5% 34.3%
ACL on Loans ($USD Millions)$351.8 $349.1 $346.1
ACL / Total Loans (%)1.59% 1.59% 1.56%
ACL / Loans ex Warehouse (%)1.67% 1.67% 1.66%
NPAs ($USD Millions)$81.5 $81.4 $110.5
NPAs / Avg Interest‑Earning Assets (%)0.23% 0.24% 0.33%
Total Cost of Funds (%)1.80% 1.66% 1.64%
Loan Portfolio Breakdown ($USD Millions, % of loans)Q4 2024Q1 2025Q2 2025
Commercial & Industrial$1,962 (8.8%) $1,915 (8.7%) $1,897 (8.6%)
Warehouse Purchase Program$1,081 (4.9%) $1,058 (4.8%) $1,287 (5.8%)
Construction & Land$2,859 (12.9%) $2,845 (13.0%) $2,873 (12.9%)
1–4 Family Residential$7,581 (34.2%) $7,576 (34.5%) $7,531 (33.9%)
Home Equity$906 (4.1%) $897 (4.1%) $869 (3.9%)
Commercial Real Estate (incl. Multi‑family)$5,801 (26.2%) $5,783 (26.3%) $5,828 (26.3%)
Agriculture$1,034 (4.7%) $1,014 (4.6%) $1,029 (4.6%)
Consumer & Other$379 (1.7%) $379 (1.7%) $369 (1.7%)
Energy$546 (2.5%) $510 (2.3%) $514 (2.3%)
Total Loans$22,149 $21,978 $22,197

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Noninterest Expense ($USD Millions)Q3 2025—$141–$144 New
Fair Value Loan Income ($USD Millions)Q3 2025Q2 actual $3.1 $2–$3 Lower
Fee Income Run‑Rate ($USD Millions)Ongoing$36–$38 (prior commentary referenced) $38–$40 Raised
Tax‑Equivalent NIM (%)FY 2025 and forward“NIM expansion to normal” (nonnumeric prior) 3.25%–3.30% FY25; ~3.35% in 6 months; ~3.48% in 12 months base case Quantified/maintained expansion trajectory
Warehouse Program Average Balance ($USD Billions)Q3 2025Q2 avg $1.179; mgmt expected ~$1.150 ~$1.25 Raised
Dividend per Share ($)Q3 2025$0.58 (Q2 2025) $0.58 (declared for Q3) Maintained
NII Accretion from American BankPost‑close run rate—~$85–$90M/yr plus ~$15–$16M AOCI accretion; margin mid‑single‑digit accretion New (M&A)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024 and Q1 2025)Current Period (Q2 2025)Trend
NIM trajectoryNIM up to 3.05% in Q4; mgmt expected continued expansion to “more normal” levels . Q1 NIM to 3.14%; “continues to increase” .NIM 3.18%; model shows 3.25%–3.30% FY25; 3.35% in 6 months; 3.48% in 12 months .Improving; explicit targets provided.
Deposits & fundingQ4 deposits grew; strong core deposit base (34.5% noninterest‑bearing) . Q1 borrowings reduced by $500M .Q2 deposits −$553M QoQ on seasonality; noninterest‑bearing 34.3%; FHLB borrowings down to $2.9B (from $3.9B) .Seasonal pressure; funding cost down; discipline maintained.
Loan growthQ4 linked loans −$232M; lapped prior increases . Q1 loans −$172M QoQ; warehouse down .Q2 loans +$220M QoQ (4% annualized); core commercial ex‑warehouse up $73M; warehouse seasonal strength .Reaccelerating.
Asset qualityQ4 NPAs 0.23% of avg interest‑earning assets . Q1 NPAs 0.24% .Q2 NPAs 0.33%; increases concentrated in three buckets; no ACL build .Deteriorated modestly; contained per mgmt.
M&A strategyQ4 announced 2025 buyback program and highlighted M&A optionality . Q1 indicated optimism, macro tailwinds .Announced American Bank deal; management active on further M&A .Active consolidation.
Fee incomeQ4 total NI income $39.8M . Q1 $41.3M .Q2 $43.0M; run‑rate lifted to $38–$40M .Strengthening.
Regulatory environmentQ4 commentary not specific. Q1 macro/business accolades .Mgmt expects smoother regulatory path vs prior delay; 3–4 months typical .Improving clarity.

Management Commentary

  • CEO on performance tailwinds: “Our net interest margin also improved to 3.28%…these tailwinds should continue to be positive over the next 12 and 24 months” .
  • CFO on NIM model: “3.35% net interest margin in six months…3.48% [in] 12 months” with full‑year 3.25%–3.30% .
  • CFO on American Bank accretion: “about $85 to $90 million on NII…additional $15 to $16 million [AOCI adjustment]…mid single digit…margin increase overall” .
  • CEO on deposit discipline: “You can build a balance sheet…pay 5%…we’ve been trying to be very disciplined and really manage our net interest margin” .
  • Credit explanation: “Three buckets…$13M [Lone Star]…$19M [LegacyTexas used vehicle notes]…~$51M single family homes…fully reserved” .

Q&A Highlights

  • Loan growth outlook: Low single‑digit growth achievable for rest of year; core commercial loans up $73M; warehouse expected to average ~$1.25B in Q3 .
  • Margin trajectory: Cost of deposits stable; bond portfolio (~$1.9B annual cash flows) and ~$5B of loans repricing to higher yields drive NIM expansion; full‑year 3.25%–3.30% .
  • American Bank pro forma: Strong deposit franchise (cost ~1.66%); higher loan yields (~6.43%); NII +$85–$90M annually plus ~$15–$16M AOCI; minimal expected runoff .
  • Fee income run‑rate: Updated to $38–$40M (from $36–$38M) on stronger service and card fees .
  • Regulatory timing: Expecting faster approvals (3–4 months typical) vs last deal’s delays; continued M&A activity .
  • Asset quality: NPAs increase concentrated; product change (minority/low‑income mortgage program discontinued >1 year ago), low loss‑given‑default; no ACL addition in Q2 .

Estimates Context

  • Q2 2025: EPS $1.42 vs $1.4137* (beat); revenue $310.7M vs $315.3M* (miss). Prior quarters: Q4 2024 EPS $1.37 vs $1.3346* (beat), revenue $307.6M vs $303.4M* (beat); Q1 2025 EPS $1.37 vs $1.3540* (beat), revenue $306.7M vs $307.9M* (slight miss).
    Values marked with * are retrieved from S&P Global.

Key Takeaways for Investors

  • Modest EPS beat alongside NIM expansion and efficiency improvement suggests underlying earnings power is strengthening, even as reported revenue missed consensus due to lower securities gains YoY .
  • Loan growth reaccelerated (+$220M QoQ), with core commercial momentum and seasonal warehouse strength; watch deposit seasonality through Q3 before typical Q4 recovery .
  • NPAs increased, but management detailed concentrated sources and maintained ACL without a build; near‑term stock narrative may weigh asset quality vs margin expansion .
  • American Bank acquisition is a clear positive catalyst: material NII and margin accretion post‑close with minimal anticipated runoff; expect focus on regulatory timing and integration milestones .
  • FY25 margin trajectory guided to 3.25%–3.30% with explicit path to ~3.48% in 12 months; supportive for estimate revisions upward on NII/NIM .
  • Expense outlook inches up in Q3 ($141–$144M), offset by fee run‑rate lift and bond/loan repricing tailwinds; monitor operating leverage .
  • Trading lens: Near‑term movement likely tied to credit headlines and M&A accretion clarity; medium‑term thesis hinges on margin expansion, disciplined funding, and consolidation strategy execution.